The probability of a rate cut in September approaches 95%! UBS expects the Federal Reserve to begin a "series of cuts" until 2026
UBS expects the Federal Reserve to restart interest rate cuts in September, reducing rates by 25 basis points at each meeting until 2026, totaling a 100 basis point cut. Market expectations for rate cuts are nearing 95%. The U.S. labor market is weak, and the Treasury Secretary has suggested adopting a more aggressive easing policy. UBS recommends that investors adopt a highly diversified portfolio to cope with market volatility and consider non-traditional investment channels
According to the Zhitong Finance APP, recent market trends have further strengthened investors' expectations that the Federal Reserve may soon restart its loose monetary policy. The latest data from the federal funds futures market shows that the market generally believes that the probability of the Federal Open Market Committee (FOMC) lowering interest rates at the monetary policy meeting on September 17 is close to 95%, up from less than 60% a month ago.
It is noteworthy that the current U.S. labor market is showing signs of weakness, and discussions in the market about the Federal Reserve needing to further expand the rate cut have gradually increased, with some opinions even advocating for a single rate cut of 50 basis points. In this context, U.S. Treasury Secretary Scott Basset publicly stated that the Federal Reserve should seriously consider adopting a more aggressive easing policy to address economic challenges.
From the perspective of inflation, although companies may pass some cost pressures onto consumers through price increases, leading to a moderate upward trend in prices, the continued slowdown of inflation in the housing sector and consumers' sensitive reactions to price changes due to gradually constrained purchasing power will, to some extent, offset the impact of tariff policies.
Considering the ongoing weakness in the labor market, UBS predicts that the Federal Reserve will officially restart the rate-cutting process next month and expects that each policy meeting before January 2026 will implement a regular rate cut of 25 basis points, with a cumulative rate cut of 100 basis points.
From an asset allocation perspective, the Federal Reserve's gradual shift towards a loose monetary policy environment will support the stock market, high-quality bonds, and safe-haven assets such as gold.
In terms of investment strategy, UBS consistently advises investors to withstand market volatility through a highly diversified investment portfolio, creating conditions for long-term return accumulation. For investors with corresponding risk tolerance who can effectively manage the unique risks of alternative investments, non-traditional investment channels such as hedge funds and private equity markets can also be considered
